Today we’re taking on a nagging question I actually hear a lot of noobs ask about the possibility of flipping houses that other investors already have under contract…

From: JACQUELINE BROWN
To: ** REI Tips **
Subject: I have a Question

Hi, Thanks so much for your very informative website, It’s a Great Resource for me, I’m new at Learning how to invest in properties, and I’m really so excited to get started, there is so much for me to learn, but I’m so willing.  I do have a question.  I found a property at a low price, but I really think this property is being sold by another real estate investor, could I actually put the property under contract, and flip the property to another investor? Any help would be Greatly Appreciated.  Thank You.

Sincerely,
Jacqui

Hi, Jacqui!  First, thanks so much for your kind words!  You got me all warm and fuzzy inside.

Now I assume when you say “I really think this property is being sold by another real estate investor”, you mean whoever first presented the deal to you may not be the owner, but rather a wholesaler with a pending purchase contract (or option) for the property.  (If not, correct me.)

Great question!  And the short answer is, yes, it is surely possible for you to also put another purchase contract (or option) in place, then flip it to another investor.  Think of it as a “double flip”, and it actually happens more often than you think.

Your question actually reminds me of how my friend Bill (who flips houses in Vegas) stumbled upon a creative way to profit from this very tactic one day when he was trying to drum up a buyer for one of his deals.

Bill’s Buyer’s List “Roulette”

(Get it?  Cause he flips houses in Vegas… )

One day with a particular house under contract, Bill started at the top of his buyers list making calls to try and quick flip it.  After pitching his deal to each of them, he then had the bright idea of asking them just one more little question before letting them get off the phone:

“Hey before you go, do you have any other houses you’re trying to sell right now?”

As you might imagine, a number of them did.  So then Bill asked,

“Soooooo… If I can find someone to buy that thing from you, would you mind giving me a piece of the action?”

To which almost every one of them said, “Uh……YEAH!”.  Whether by adding a little extra icing to the top or just sharing some of the profit they’d already built into the deal, they were more than happy to go splits with Bill if he could help them liquidate it sooner rather than later. More often than not, you’ll find this to be the case.

So he took careful notes on each and every deal his guys needed to expedite.  Then once he made his way through his entire buyers list, he started right back at the top and called each one of them again, this time describing the array of deals his colleagues had share with him to see if anyone had any interest.

Lo and behold, Bill flipped a couple of those houses that day, and added a few extra thousand to that month’s bottom line!  Bill’s “Buyer’s List Roulette” was born.

How This Relates to Your Question…

From there, alls Bill had to do next was go secure an “equitable interest” in the property real quick by putting a contract in place between himself (as buyer) and the investor (seller). Then another contract to sell to his end buyer.  So it looks a little like this:

• Joe Owner “A” (Current property owner of record)
• Jane Investor “B” (one of Bill’s buyers, and has a contract to purchase from Joe “A”)
• Bill Investor “C” (contracts to purchase from Jane “B”)
• Gertrude Investor “D” (Also on Bill’s buyers list, and contracted to buy this deal as the end-buyer from Bill “C”)

Now even though investors “B” and “C” don’t actually own the house yet – they’re also wholesalers and just have a contract on the house – Bill (“C”) and Gertrude (“D”) can still contract to purchase with non-owner investors.  So long as the closings happen in the proper order and the deed and money “flow” properly, all these closings can happen on the same day or “simultaneously”.

And a big part of the reason this all can work is because the “equitable interest” you have when you secure a purchase contract, gives you the legal right to market and/or contract to sell that property, so long as you don’t actually sell it before you own it.

So with the specific house you’re asking about, just make sure the numbers still make sense for a possible “double flip”, hedge your risk as best you can, and personally I say make sure your investor knows you’re also planning to wholesale the deal.

If all that’s in order, t I say “double flip” to your heart’s content!

Hope that helps, Jacqui!  Anyone else have any thoughts on this?  Leave ‘em in the comment below…

a

“My biggest real estate investing question *right now* is why would an investor use a purchase contract when an option contract doesn’t have the same requirements of us as investors? Is this usually a case of getting a contract if it’s worth it, assuming they don’t want to sign an option contract?”

Tom, Tampa Bay FL

Great question, and one I’ve actually heard a number of times over the years.  So here’s a video with my perspective on this…

http://www.youtube.com/watch?v=rfOUFY3KTLc

Hey, hope that helped shed some light on it for ya, Tom!

Additional Resources I Mentioned…

• Real Estate Purchase Contract…Undressed (Free Download, Plus Video) »
• The Real Estate Option Contract…Undressed (Plus Free Download) »
• The Non-Exclusive, “Flexible” Real Estate Option, Demystified »

What’s In a Viable Real Estate Option?

One part I left out of the video above is that there are some basic requirements that must be present to make a real estate contract valid:

• Mutual Agreement – Basically you need a “meeting of the minds” on what you want to do and how.
• In Writing – While verbal contracts might be legal, they’re rarely enforceable. So put it in writing.
• Identify the Parties – You need to clearly identify who the seller/optionor and buyer/optionee are…by name.
• Identify the Property – Many people use the legal description, but this is overkill in my opinion. I just put the full street address and that’s just fine.
• Purchase Price – The contract must state the purchase price of the property, either specifically (e.g., $40,000) or a reasonably ascertainable figure (e.g., “appraised value as determined by XYZ Appraisal Company”).
• Consideration – A contract must have consideration to be enforceable. this is (technically speaking) the benefit, interest or value that induces a promise; it is the glue that binds a contract. In an option, think of it as a fee (not a down payment) the potential buyer pays in return for the privilege of having a binding option to purchase.  The consideration amount really isn’t all that important, but rather whether there is consideration at all.
• Signatures – A contract must be signed by all parties to be enforceable. (Duh, right?)

So what are your thoughts?  Any other insights to offer or additional questions?  Post ‘em in the comments below!

Thanks for tuning in…

a

• land options,
• equitable interest,
• and ignorant Realtors…

See if you can identify with Ken’s question, and/or maybe you have some feedback of your own you can offer him…

From: Ken Barns
To: ** REI Tips **
Subject: Real Estate Option Question

Hi Jp,

Great video on real estate options. I do have a few questions.

First, my goal is to invest in vacant land. Let’s say I get a piece of property under option contract for $20,000 but FMV is $45,000. I market the property to a vacant land broker/Realtor or investor.

The vacant Realtor tells me the only way they will try to sell it to their buyers if I exercise my option to buy the property. Being that I don’t have $20,000 to purchase the property, however,

I am able to get the seller to do seller financing $2,000 down $200 a month. The question is can I go back and present the deal to the vacant land Realtor since I now exercised my option to purchase the property even though I am making payments on it?  Basically, can I sell/or assign a real estate option if I am making monthly payments on it?

Best Regards,
-Ken

Interesting question, Ken. I think I can clear this up for you, and I’m betting others might have some helpful advice to share as well.

But first off, let me say I’m not an attorney and I am not giving legal advice here.  In fact, please (everyone) consult with your real estate attorney before you go and use any of this. Gotta cover my butt here…

Having said that, let me say I’m pretty darn sure your Realtor’s flat out wrong and full of the crap of ignorance but totally convinced of his total awesomeness and right-ness.

Equitable Interest (You Got It!)

The fact is, having an option (or a purchase contract) in place gives you the equitable interest in the property you need, so you can legitimately advertise for its resale.  So long as you don’t actually sell it before you’ve bought it. (I know, Captain Obvious.)

Then once you have an interested party, you can either exercise your option and purchase the thing, then immediately resell…OR you can just assign your option…which is not actually selling the property, but rather your equitable interest in the property…which is (I believe in most states) considered personal property rather than real property.  A whole different ball of wax.

The Problem with So Many Realtors…

This stinks, but in my experience most Realtors aren’t very good at “outside the box” thinking.  So unless you’re serving up a plain vanilla deal, they’ll play the “I’m a Realtor and I’ve never heard of that, ergo you can do that and it’s illegal” card.

Not trying to beat up on Realtors here – I’m NOT anti-Realtor. I used to be one.  It’s just a sad truism that (and there are of course exceptions to this) the vast majority find it necessary to assume that anything they’re not familiar with is probably illegal and will get you/them in trouble.  I fact, I tend to find the same thing is common in attorneys.

So What Are Your Options? (Pun Intended)

Well if you’re determined to use this guy to list, then personally I’d probably start by sharing (confidently) with the Realtor that you realize it’s not what he’s used to, but it’s actually quite legal to advertise something for sale if you have a legal contract in place (in this case an option), just so long as you don’t sell before you buy.

In fact go ahead and tell him you have a buddy (me) who’s local MLS has even introduced “Equitable Interest” as a new listing category recently for just such occasions.  And yes, it’s true.

If he remains defiant / obstinate, then moving on to another Realtor is always an option.  I’m just saying…some folks don’t want you be an expert…cause they’re the expert.

Now Back to Your Original Question, Which Was…

“…can I go back and present the deal to the vacant land realtor since I now exercised my option to purchase the property even though I am making payments on it?…Basically, can I sell/or assign a real estate option if I am making monthly payments on it?”

Well that depends on the scope of your Realtor’s ignorance frankly. 

As I said, you should have already been able to list it.  Now that you have actual owner financing in place, you just snatched another few “sticks” from the owner’s “bundle of ownership rights” (anyone who’s been through Realtor school is probably smiling at that one).  So you should be DOUBLE able to list the dang thing!

But I should point out that you won’t need the Option agreement anymore.  In fact, you will have already exercised it and it’s now considered executed.

Now you didn’t specify the type of owner financing you mean, but there’s two main types:

• “Standard” Owner Financing: The deed transfers over to you and the seller gets a note for what you owe him and a mortgage/deed of trust securing it.  In other words, the seller is the “bank/lender”.

• “Contract for Deed” / “Land Contract”: You don’t actually get the deed transferred over to you until you’ve finished making your installment payments.  But you’re still considered “owner”.

In either of these types of owner financing, if you defaulted on your payments the former seller would have to foreclose (rather than evict) in order to kick you out and reclaim the property.

So, long story short, you should definitely be able to list this thing with an option in place.  And double as much with owner financing in place. Whether your Realtor believes it or not.

And also I suggest getting a new Realtor.

Hope that helps.  Anyone else have any thoughts on this?  Share them below please – We’d love to hear ‘em.

a

From: Mike C.
Sent: Friday, April 23, 9:12 AM
To: ** REI Tips **
Subject: Re: Question?

I haven’t heard back from him yet, but when I do, I’ll keep you updated.

In the mean time, maybe you can answer this question. I hate to be filling your email with my questions, but I just need to know how I can protect my relationship with my seller? How do I prevent my end buyers from going behind my back on future deals and cutting me out? This potential seller buys property straight from a bulk REO source, so I could be getting property on a consistent basis from this seller. If you can help me, I would appreciate it.

Thanks,
Mike

Hi, Mike.  Great question, and one a lot of us contend with at some point.  And since I’m answering this one publicly, I’d like to emphasize that your question is not how to protect your interests on a specific deal you currently have under contract.  That’s what an “Affidavit of Equitable Interest” can do, should you feel you need it.  And you’ll find one in my bundle of 53 free REI forms.

Your question is more about how to prevent your regular buyers and sellers from working around you in the future if they want to.  And honestly I’d love to share the secret formula with you here.  But the truth is, there’s really no way I know of  to do this.

After wholesaling somewhere close to 200 at this point, I have yet to hear of any way we as wholesalers can lock our buyers and sellers into an exclusive ongoing relationship with us.  (And really, if you step outside the wholesaler’s mind and put yourself in their shoes for a second, I’m sure you can appreciate that.)

But regardless of this, many of the most successful wholesalers out there do business over and over and over again with the same buyers and sellers.  So what’s their secret?

Simply put, it’s being desirable. And in some cases, being indispensable.

How can you do this?

Here’s How to Make Them Want Need You…

1) Establish and cultivate a superb level of rapport.

Be above reproach and have the level of character, integrity and trustworthiness that cause your buyers and sellers to prefer doing business with you whenever they can.  Be the kind of person you would want to work with.  No, actually be better.

2) Be a rainmaker.

I can tell you, a lot of folks have wanted to do business with me simply for the fact that I established myself as an active and obvious leader in the area.  I started and ran our local REIA group for 6 years.  Running meetings, teaching workshops, going to investor lunches and standing up during “buy and sell” time with active deals can do a lot to make people want to connect with you.

I’m not suggesting you posture yourself as something you’re not.  I”m saying become the kind of person others notice and are drawn to.  Look for opportunities to become more of a center of influence and display your activity in the marketplace…and a lot of times you’ll find people want to do deals with you because it makes them feel good to work with a rainmaker.  I know this might seem a strange concept at first, but it’s true.

3) Add authentic and unique value whenever possible.

Here’s a fact: Always being of authentic value to people should be a core value of yours anyway.  If it’s not yet, then make it so.

So in perspective of the issue at hand, ask yourself how you can actually make it worthwhile for your regular buyers and sellers to go through you on an ongoing basis?  How can you make them need you?  Find out how it can actually benefit them to continue working with you…then make sure they’re aware of it.

• Can you save them time or effort by covering legwork they would have to ordinarily do?

• Can you somehow expedite some part of the deal?  The research?  The closing?

• Dont’ be shy about just asking them: “What can I do for you that would make your life easier, so we can do as many deals together as possible?” Then figure out how you can do that.

The bottom line is there’s no guarantees you won’t get cut out at some point.  It’s happened to me and it’ll probably happen to any active wholesaler.  And the reality is, it’s not like you’re being shafted if it happens (Unless you’re actually getting cut out of a deal you actively presented…and that’s a whole different ball of wax…)  Most of the time, it’s a factor of you not bringing enough value to offset the cost of having you in the middle.

So how to most successful wholesalers protect their ongoing buyer/seller relationships?

By giving their buyers and sellers sufficient motivation to keep the relationship going.  By being of authentic value on an ongoing basis.  And by being the kind of person others want and/or need to do business with regularly.

So that’s what I got – hope it helps.  Anyone else have any thoughts to add to this? I welcome your comments below…

a